Grayscale's head of research, Zach Pandl, stated on July 23 that Bitcoin could catch up to the stock market's recent gains if the Federal Reserve keeps interest rates unchanged for the remainder of 2026. Since late February, when geopolitical tensions escalated, the S&P 500 has climbed roughly 9%, while Bitcoin dipped 1% and gold plunged 20%.
Rate Expectations Raise Opportunity Costs
Pandl noted that the one-year Fed rate expectation has risen by about 60 basis points since the conflict began, with roughly half of Fed officials seeing a rate hike as reasonable this year. The European Central Bank has already moved to raise rates. Both Bitcoin and gold, as non-yielding monetary assets, face higher opportunity costs when real interest rates rise, which curbs demand. Markets currently price in about 1.5 rate hikes this year. Bank of America expects quarter-point increases in September, October and December, while Nomura believes that if the Fed holds steady in June, it could be a key turning point for the credit cycle and AI boom.
Bitcoin's Dual Role
Grayscale's report highlights Bitcoin's dual role in portfolios: as a scarce digital commodity serving as a long-term store of value similar to gold, and as a public blockchain asset providing exposure to the crypto industry's long-term growth, akin to growth stocks. Pandl said that if the probability of rate hikes declines — consistent with Grayscale's base case — Bitcoin's price performance should be able to match the equity market.
Grayscale's Divergent View
Grayscale disagrees with the market consensus on rate hikes; its base scenario is that the Fed will stay on hold throughout 2026. If correct, Bitcoin could see a catch-up rally in the second half of the year. Bitcoin has already reclaimed the $65,000 level. Strategy (formerly MicroStrategy) purchased 520 BTC for $34.9 million last week, indicating continued institutional buying.